Tax law provision poses ghastly threat to industry

The true depth of congressional dysfunction may be measured in the coming days following the discovery of an absurd provision in the recently enacted federal tax law. The Wall Street Journal and other news outlets reported last week that Section 199A in the law lets farmers deduct up to 20% of their total crop sales to farmer-owned cooperatives. It is believed the rule gives growers compelling motivation to sell their crops to co-ops whenever possible instead of grain companies, mills and other grain users. In effect now, the rule could imperil the viability of these businesses and significantly raise costs for grain buyers as well as downstream commodity users, including bakers.

Consequences of the provision added at the last minute to a tax bill rushed through Congress presumably were not foreseen by all its authors, including Senator Pat Roberts of Kansas. Serious consequences extend to the federal government. Cash receipts from crops sold in 2016 totaled nearly $200 billion, including almost $100 billion for corn, soybeans and wheat. Making 20%, or up to $40 billion in grower revenues, deductible may dramatically reduce their federal tax payments.

The National Grain and Feed Association said late last week it was working with key constituent groups toward a solution to a genuine mess, though congressional action ultimately will be required. The episode underscores the underlying fragility within the robust eco-system that comprises U.S. agriculture and the seeming endless propensity of the federal government to disrupt the delicate free market balance crucial to American food and agriculture.

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